How Does Coordination of Benefits Work?

Coordination of Benefits (COB) is a process used by health insurance companies to determine how they share the cost of medical expenses when an individual has more than one health insurance plan. This mechanism ensures payments for healthcare services are managed appropriately, preventing duplicate benefits or overpayments for the same medical care. COB is relevant when a person has multiple health coverage avenues, such as through different employers, a spouse’s plan, or government programs. Understanding COB helps policyholders navigate their benefits and manage healthcare costs.

What is Coordination of Benefits

COB is the process insurance companies use to determine payment responsibilities when an individual has multiple health insurance plans. Its primary purpose is to prevent individuals from receiving more than 100% of the allowed medical expenses from all plans combined. Without COB, a person could profit by collecting payments exceeding the actual cost of care from multiple insurers.

One plan is designated as the “primary payer,” paying its benefits first. After the primary plan processes the claim, any remaining balance may be submitted to the “secondary payer,” which considers payment for services not fully covered by the primary plan. In some situations, a “tertiary payer” might exist for residual costs. The “allowed amount” is the maximum a plan will pay for a covered service, and COB ensures total payments from all plans do not exceed this amount, ensuring fair distribution of costs among insurers.

Rules for Primary and Secondary Coverage

Specific rules govern which insurance plan pays first (primary) and which pays second (secondary). For children covered by both parents’ plans, the Birthday Rule applies: the plan of the parent whose birthday falls earlier in the calendar year is primary, and the other parent’s plan acts as secondary. For married individuals with their own employer-sponsored plans, the employee’s own plan is generally primary for themselves, and their spouse’s plan (if they are covered as a dependent) is secondary. This arrangement helps clarify payment responsibilities for individuals covered by multiple group health plans.

Medicare also has specific coordination rules. If an individual is Medicare-eligible and has group health coverage through current employment, Medicare’s role depends on employer size. For employers with 20 or more employees, the employer’s plan usually pays first. For employers with fewer than 20 employees, Medicare typically pays primary.

Other types of coverage also have coordination rules. Workers’ Compensation insurance is generally primary for work-related injuries or illnesses. Automobile insurance may be primary for medical expenses from car accidents, depending on the policy and state regulations. These rules help establish an orderly payment sequence, reducing confusion and ensuring timely processing of claims.

How Claims are Processed with Coordination

Processing a medical claim with COB follows a structured sequence. The claim is first submitted to the primary insurance plan. This plan reviews the claim, applies its benefits, and determines the payment amount based on deductibles, copayments, and coinsurance. The primary plan then issues an Explanation of Benefits (EOB) detailing what was covered, what was paid, and any remaining balance.

Any unpaid balance, along with the primary EOB, is then submitted to the secondary insurance plan. The secondary plan reviews the claim and EOB to determine its payment responsibility, considering its own benefits, deductibles, and coinsurance. It often pays for services not fully covered by the primary plan, up to its own allowed amount. After both plans process the claim, any remaining amount not covered, such as remaining deductibles or charges exceeding the allowed amount, typically becomes the patient’s responsibility.

Applying Coordination of Benefits in Practice

Understanding how Coordination of Benefits (COB) applies in real-world situations can clarify its practical impact. For a family where both parents have health insurance and their child is covered under both plans, the Birthday Rule determines primary coverage. If the mother’s birthday is in April and the father’s is in June, the mother’s plan is primary for the child’s medical claims, with the father’s plan serving as the secondary payer.

For a working individual eligible for Medicare, if they work for a large employer (20+ employees), their employer-sponsored plan is typically primary. Medicare then functions as the secondary payer, covering costs the employer plan did not fully address.

In a car accident, medical expenses may first be submitted to the automobile insurance policy’s medical payments coverage, making it primary. Any remaining eligible medical costs could then be submitted to the individual’s personal health insurance plan as the secondary payer. These examples illustrate how COB systematically determines payment order, preventing overpayments and ensuring that covered services are appropriately paid across multiple benefit sources.